Creative Construction: The DNA of Sustained Innovation

Abstract

Creative Construction tackles the myth that larger enterprises are inherently incapable of transformative innovation and are doomed to be disrupted by nimble start-ups. If larger enterprises seem incapable of transformative innovation, it is due to how we design and manage them, rather than anything inherent in their scale. In fact, Creative Construction argues, if used properly, scale can be an asset, rather than a liability, when it comes to innovation. However, to leverage the advantages of scale for innovation, companies need the right combination of strategy, systems, and culture. Based on more than three decades of the Pisano's research, teaching, and experience, Creative Construction offers a set of principles that will lead readers to rethink many long-held beliefs about innovation.

Innovative cultures are generally depicted as pretty fun. They’re characterized by a tolerance for failure and a willingness to experiment. They’re seen as being psychologically safe, highly collaborative, and nonhierarchical. And research suggests that these behaviors translate into better innovative performance. But despite the fact that innovative cultures are desirable, and that most leaders claim to understand what they entail, they are hard to create and sustain. That’s because the easy-to-like behaviors that get so much attention are only one side of the coin. They must be counterbalanced by some tougher and frankly less fun behaviors: an intolerance for incompetence, rigorous discipline, brutal candor, a high level of individual accountability, and strong leadership. Unless the tensions created by this paradox are carefully managed, attempts to create an innovative culture will fail.

The scalability of a marketplace depends on the operations of the marketplace platform as well as its sellers’ cost structures and capacities. When fixed costs of entry are high, sellers with small capacities may be deterred from entering the market because of their inability to leverage economies of scale. In this study, we explore one strategy that a marketplace platform can use to enhance its scalability: providing an ancillary service to sellers to reduce their fixed costs. In our model, a platform can choose whether and when to provide this service to sellers. When the platform provides the service, it encourages the entry of small sellers. However, it diminishes large sellers’ incentives to make their own investment, thus reducing their potential output. When the output reduction by the large sellers is substantial, the platform may not want to provide the ancillary service even if it could do so at no cost. To encourage entry while mitigating output reduction, the platform may choose to strategically delay providing the service.